Question 1

Which of the following is NOT a technique for valuing a firm's common stock?

Accepted Answer

A)  present value of free cash flow to equity 
B)  present value of dividends 
C)  price-earnings ratio 
D)  price-book value ratios 
E)  price-cost of goods sold ratio 
A)  present value of free cash flow to equity 
B)  present value of dividends 
C)  price-earnings ratio 
D)  price-book value ratios 
E)  price-cost of goods sold ratio E

Question 2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Valentine Company currently has a 14 percent annual growth rate, while the market average is 4 percent. The market multiple is 15.
-Refer to Exhibit 9.13. Determine the justified P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 10 years.

Accepted Answer

A)  3.0 
B)  9.2 
C)  16.6 
D)  28.6 
E)  37.6 
A)  3.0 
B)  9.2 
C)  16.6 
D)  28.6 
E)  37.6 E

Question 3

When applying the earnings multiplier model, all of the following will cause the required rate of return, k, to change EXCEPT

Accepted Answer

A)  changes in the real risk-free rate. 
B)  changes in the retention rate. 
C)  changes in the rate of inflation. 
D)  changes in the risk premium for common stock. 
E)  All of these are correct (that is, all of these changes will cause a change in the required rate of return). 
A)  changes in the real risk-free rate. 
B)  changes in the retention rate. 
C)  changes in the rate of inflation. 
D)  changes in the risk premium for common stock. 
E)  All of these are correct (that is, all of these changes will cause a change in the required rate of return). B

Question 4

You are provided with the following information about Javier Corporation. Sales for the year 2010 were $500,000, and the Net Profit Margin (NPM) was 15 percent. Analysts project sales to grow by 12 percent next year (that is 2011). However, because of more competition, the NPM is expected to decline by 10 percent for the year 2010. The expected P/E multiple for the year 2011 is 22. The total number of shares outstanding is 20,000. Use the earnings multiplier model to calculate the expected price for Javier Corporation in the year 2011.

Accepted Answer

A)  $74.25 
B)  $61.6 
C)  $82.5 
D)  $83.16 
E)  $101.64 
A)  $74.25 
B)  $61.6 
C)  $82.5 
D)  $83.16 
E)  $101.64

Question 5

A growth company is a firm that has the opportunities and ability to invest capital in projects that generate rates of return greater than the firm's cost of debt.

Accepted Answer

A) True 
 B)False

Question 6

The growth rate (g) of dividends is affected by all of the following EXCEPT

Accepted Answer

A)  required return. 
B)  retention rate. 
C)  total asset turnover. 
D)  financial leverage. 
E)  net profit margin. 
A)  required return. 
B)  retention rate. 
C)  total asset turnover. 
D)  financial leverage. 
E)  net profit margin.

Question 7

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 9.17. What is Left-Aid Corporation's expected sustainable growth rate?

Accepted Answer

A)  11.9% 
B)  18.7% 
C)  22.1% 
D)  27.7% 
E)  30.0% 
A)  11.9% 
B)  18.7% 
C)  22.1% 
D)  27.7% 
E)  30.0%

Question 8

An analysis of U.S. equity markets using the cash flow techniques concludes that the market is not fully valued.

Accepted Answer

A) True 
 B)False

Question 9

A growth company may exist for all of the following reasons EXCEPT

Accepted Answer

A)  the company holds patents. 
B)  the company possesses unique distribution or marketing strategies. 
C)  the company is in a competitive environment. 
D)  significant barriers to entry exist. 
E)  All of these are correct (that is, all of these are reasons a growth company may exist). 
A)  the company holds patents. 
B)  the company possesses unique distribution or marketing strategies. 
C)  the company is in a competitive environment. 
D)  significant barriers to entry exist. 
E)  All of these are correct (that is, all of these are reasons a growth company may exist).

Question 10

Which of the following is NOT a reason given for why forecasters are so often incorrect?

Accepted Answer

A)  There is a temptation for economic forecasters to stay fairly close to the "norm," that is, "group think." 
B)  Many analysts are simply too short-sighted. 
C)  Economists and economic forecaster often suffer from information overload. 
D)  Some economic forecasters are too broad-minded, as they try to include a number of ideas in their forecasts. 
E)  None of these are correct (that is, all are reasons cited for why forecasters are often incorrect). 
A)  There is a temptation for economic forecasters to stay fairly close to the "norm," that is, "group think." 
B)  Many analysts are simply too short-sighted. 
C)  Economists and economic forecaster often suffer from information overload. 
D)  Some economic forecasters are too broad-minded, as they try to include a number of ideas in their forecasts. 
E)  None of these are correct (that is, all are reasons cited for why forecasters are often incorrect).

Question 11

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are using the free cash flow to equity (FCFE) technique to analyze the U.S. equity market. The beginning FCFE is $90, and the required rate of return is 10 percent. Free cash flows are expected to grow at a 10 percent rate for the next two years and then grow at a constant rate of 7 percent forever.
-Refer to Exhibit 9.7. What will FCFE be three years from now?

Accepted Answer

A)  108.90 
B)  116.52 
C)  117.00 
D)  119.79 
E)  120.21 
A)  108.90 
B)  116.52 
C)  117.00 
D)  119.79 
E)  120.21

Question 12

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 9.14. What are the expected sustainable growth rates for Wal-Blue and its industry?

Accepted Answer

A)  25.2% and 15.0% 
B)  30.0% and 17.5% 
C)  25.2% and 17.5% 
D)  27.5% and 12.5% 
E)  30.0% and 15.0% 
A)  25.2% and 15.0% 
B)  30.0% and 17.5% 
C)  25.2% and 17.5% 
D)  27.5% and 12.5% 
E)  30.0% and 15.0%

Question 13

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Harcourt Industries currently has an 18 percent annual growth rate, while the market average is 8 percent. The market multiple is 12.
-Refer to Exhibit 9.12. Determine the justified P/E ratio for Harcourt Industries assuming Harcourt can maintain its superior growth rate for the next nine years.

Accepted Answer

A)  5.98 
B)  13.13 
C)  21.20 
D)  58.68 
E)  26.65 
A)  5.98 
B)  13.13 
C)  21.20 
D)  58.68 
E)  26.65

Question 14

Defensive companies are firms in which

Accepted Answer

A)  sales, earnings, and cash flows are extremely uncertain and not necessarily related to the economy. 
B)  sales, earnings, and cash flows are likely to withstand changes caused by the economic environment. 
C)  sales, earnings, and cash flows are heavily influenced by aggregate business activity. 
D)  sales, earnings, and cash flows are growing exponentially. 
E)  None of these are correct. 
A)  sales, earnings, and cash flows are extremely uncertain and not necessarily related to the economy. 
B)  sales, earnings, and cash flows are likely to withstand changes caused by the economic environment. 
C)  sales, earnings, and cash flows are heavily influenced by aggregate business activity. 
D)  sales, earnings, and cash flows are growing exponentially. 
E)  None of these are correct.

Question 15

What is the implied growth duration of Jones Industries given the following:

Accepted Answer

A)  7.2 years 
B)  10.9 years 
C)  12.5 years 
D)  13.9 years 
E)  15.2 years 
A)  7.2 years 
B)  10.9 years 
C)  12.5 years 
D)  13.9 years 
E)  15.2 years

Question 16

Which of the following is a financial tenet of Warren Buffett?

Accepted Answer

A)  long-term prospects 
B)  resistance to institutional imperative 
C)  creation of one dollar of market value for every dollar retained 
D)  purchase at discount to intrinsic value 
E)  Product is not faddish. 
A)  long-term prospects 
B)  resistance to institutional imperative 
C)  creation of one dollar of market value for every dollar retained 
D)  purchase at discount to intrinsic value 
E)  Product is not faddish.

Question 17

The Peterson Company has an FCFF of $1000. The FCFF is expected to grow by 12 percent next year. The cost of capital is 12 percent, and the level of debt is $5000. The number of shares outstanding is 500. Calculate the firm's share price.

Accepted Answer

A)  $44 
B)  $55 
C)  $34.19 
D)  $47.23 
E)  $50 
A)  $44 
B)  $55 
C)  $34.19 
D)  $47.23 
E)  $50

Question 18

Present value of free cash flow to equity resembles the present value of earnings concept except that it includes the capital expenditures required to maintain and grow the firm and the change in working capital required for a growing firm.

Accepted Answer

A) True 
 B)False

Question 19

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company.
   In addition, a regression analysis indicates the following relationship between growth in sales per share for MacLog, and GDP growth is
%$\Delta$ Sales per share = 0.015 + 0.75(%$\Delta$ GDP)
-Refer to Exhibit 9.6. Calculate the firm's EBT per share for the year 2020.

Accepted Answer

A)  $13.29 
B)  $27.89 
C)  $18.75 
D)  $19.63 
E)  $22.91 
A)  $13.29 
B)  $27.89 
C)  $18.75 
D)  $19.63 
E)  $22.91

Question 20

_____ do well as the economy recovers.

Accepted Answer

A)  Financial stocks 
B)  Consumer durable goods 
C)  Capital goods 
D)  Cyclical companies 
E)  Consumer staples 
A)  Financial stocks 
B)  Consumer durable goods 
C)  Capital goods 
D)  Cyclical companies 
E)  Consumer staples

Which of the following is NOT a technique for valuing a firm's common stock?

When applying the earnings multiplier model, all of the following will cause the required rate of return, k, to change EXCEPT

A growth company is a firm that has the opportunities and ability to invest capital in projects that generate rates of return greater than the firm's cost of debt.

The growth rate (g) of dividends is affected by all of the following EXCEPT

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.17. What is Left-Aid Corporation's expected sustainable growth rate?

An analysis of U.S. equity markets using the cash flow techniques concludes that the market is not fully valued.

A growth company may exist for all of the following reasons EXCEPT

Which of the following is NOT a reason given for why forecasters are so often incorrect?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.14. What are the expected sustainable growth rates for Wal-Blue and its industry?

Defensive companies are firms in which

What is the implied growth duration of Jones Industries given the following:

Which of the following is a financial tenet of Warren Buffett?

The Peterson Company has an FCFF of $1000. The FCFF is expected to grow by 12 percent next year. The cost of capital is 12 percent, and the level of debt is $5000. The number of shares outstanding is 500. Calculate the firm's share price.

Present value of free cash flow to equity resembles the present value of earnings concept except that it includes the capital expenditures required to maintain and grow the firm and the change in working capital required for a growing firm.

_____ do well as the economy recovers.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 9: The Top-Down Approach to Market, Industry, and Company Analysis

Which of the following is NOT a technique for valuing a firm's common stock?

When applying the earnings multiplier model, all of the following will cause the required rate of return, k, to change EXCEPT

A growth company is a firm that has the opportunities and ability to invest capital in projects that generate rates of return greater than the firm's cost of debt.

The growth rate (g) of dividends is affected by all of the following EXCEPT

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.17. What is Left-Aid Corporation's expected sustainable growth rate?

An analysis of U.S. equity markets using the cash flow techniques concludes that the market is not fully valued.

A growth company may exist for all of the following reasons EXCEPT

Which of the following is NOT a reason given for why forecasters are so often incorrect?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.14. What are the expected sustainable growth rates for Wal-Blue and its industry?

Defensive companies are firms in which

What is the implied growth duration of Jones Industries given the following:

Which of the following is a financial tenet of Warren Buffett?

The Peterson Company has an FCFF of $1000. The FCFF is expected to grow by 12 percent next year. The cost of capital is 12 percent, and the level of debt is $5000. The number of shares outstanding is 500. Calculate the firm's share price.

Present value of free cash flow to equity resembles the present value of earnings concept except that it includes the capital expenditures required to maintain and grow the firm and the change in working capital required for a growing firm.

_____ do well as the economy recovers.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters